Will I have to pay tax on lottery cash?

Can you settle an argument between me and my wife about the lottery? I have been told that if we won a large sum and gave away millions of pounds to family members these payments would be subject to a gift tax.

Big winners: Nigel Page and partner Justine Laycock won £56m, and won't need to pay income tax on it

My wife says this is not the case. Which of us is right? T.D., Leeds

Simon Moon from This is Money replies: Lottery winnings are not regarded as income by HM Revenue & Customs so there is no income tax to pay – even on the £56.5m collected by recent Euromillions winner Nigel Page from Cirencester, Gloucestershire.

However, if you won a fortune then gave away millions and died within seven years you could be caught in the inheritance tax net.

When someone dies, the value of all their assets – including lottery winnings – is added up and set against the IHT threshold of £325,000.

The deceased's executors have to complete a form that includes questions about money or other assets that have been gifted to others in the previous seven years.

Tax will have to be paid on these gifts if they would have been taxable had they not been given away. The amount of tax tapers off in time, as is explained in our inheritance tax tables.

There is a way round this, says Geraint Jones, tax partner at accountants FW Stephens. 'Normally the inheritance tax is payable out of the residuary estate, however, gifts can be made on the agreement that the recipient will pay any inheritance tax if the person making the gift dies within seven years. A simple letter to this effect with the gift would suffice.'

There was a worry that members of syndicates could also be caught out by the seven-year rule when a winning cheque was in the name of a single individual, says Geraint.

'HMRC now say that if a written agreement is in place before the win to split the winnings according to a particular formula there will be no 'gift' if the money is channelled through an individual's bank account.

That individual will only have been a nominee holding money owned by someone else.'